Key highlights of Budget 2019-20: A Budget with something for everyone

Following the huge and decisive mandate for the return of the NDA Government, Budget expectations were running high from multiple quarters. The Budget finds mention of almost every segment- the common man, the middle class, Corporate India, farmers, SMEs and start-ups, NRIs, women, SC/ST, FIIs, UHNIs, students, homebuyers, social organisations and more. The Budget aims to strengthen the economy by addressing the core issues namely infrastructure boost, rationalisation of the tax regime, thrust to entrepreneurship, focus on socio-economic welfare programs, education, development of India as a manufacturing hub, empowerment of women and the rural economy and to encourage broad-based and inclusive growth. The following are the key takeaways that can be extracted from the Finance Minister’s maiden Budget speech in Parliament.

1. Economic reforms

In alignment with the government goal to establish India as a $3trillion economy by FY20, and further to a $5 trillion economic leader in few years down the line, the Budget incorporates several groundbreaking initiatives in this direction by kickstarting domestic and foreign investment. Infrastructure remains a priority area with the proposal to create separate blueprints for gas, water grids and regional airports. The Budget has allowed higher FDI in aviation, media, animation and insurance intermediaries. The fiscal deficit target has been reduced to 3.3% of GDP.

2. Socio-economic initiatives

Seeing the phenomenal response to Swachch Bharat, it would be further expanded to include solid waste management in every village. To facilitate ease of living, Rs 3,000 pension per month would be provided to informal sector workers. NRIs can obtain Aadhaar card under 180 days upon arrival in India. Women SHG Interest Subvention Programme would be expanded to cover all districts in India with Rs 1 lakh loan facility for SHG women members. Further, every verified woman SHG member with a valid Jan Dhan Account can enjoy Rs 5,000 overdraft facility. This would boost entrepreneurship spirit amongst women. To strengthen the agrarian economy, the government would invest extensively in improving agricultural infrastructure while encouraging private entrepreneurship in agriculture practices. The Budget proposes building 1.95 crore houses under Pradhan Mantri Awas Yojna (Rural). Continuing its emphasis on welfare schemes, the Government plans to provide housing, electricity, clean cooking facility and safe and adequate drinking water to all in rural India. Recognising the importance of water, rainwater harvesting, groundwater recharge, and management of household wastewater to be reused in agriculture would be introduced in a more significant way. Further, the Budget has announced Har Ghar Jal – to all rural household by 2024. USO Fund will be channelised to provide internet connectivity for every gram panchayat under the Bharat Net programme.

3. Tax impact

No change has been proposed in the personal income tax rates. To ensure proportional participation in India’s economic growth, there would be a surcharge of 3% for Rs 2 crore income and 7% on Rs 5 crore and above, in keeping with the concept that those who are earning more should be paying more tax, In recognition of India Inc’s contribution, the annual turnover limit for 25% corporate tax has been hiked to Rs 400 crore from Rs 250 crore. Thanking the taxpayers for their contribution, the finance minister revealed the healthy growth in direct tax revenue at 78%. To boost the housing segment, an additional Rs 1.5 lakh deduction on home loans for affordable housing has been announced. Another novel step is the interchangeability of PAN and Aadhaar for all citizens. To discourage cash transactions, the levy of 2% TDS on withdrawals of Rs one crore in a year from bank accounts for business payments has been introduced. To incentivise cash-less transactions, the government has waived MDR changes on cashless payment. Multiple labour laws would be consolidated into a set of four labour codes to simplify tax filing. There would be a thrust on new-age skills including artificial intelligence, 3D printing, with huge job potential outside India to provide a meaningful livelihood. Additional cess of Re 1 per litre on petrol and diesel has been announced. Further, the FM has hinted at rationalisation and a single tax rate for GST.

4. Market reforms

To encourage liquidity in the markets, SEBI would consider enhancing minimum public shareholding to 25% from 35% in listed companies. Further, to lend depth to the bond markets, exchanges would allow AA bonds to be used as collateral. To ensure an investor-friendly regime, there are proposals to streamline and simplify KYC (know your customer) norms for Foreign Portfolio Investors (FPIs). NRI portfolio routes would be consolidated with FPI holdings to ensure smooth transactions in the capital markets. Further, the Government is exploring measures to boost International Financial Service Centres (IFSCs) and the setting up of a Credit Guarantee Enhancement Corporation, with the development of a roadmap to deepen the bond market towards financing infrastructure projects.

In a first, the Budget has announced steps to initiate electronic fundraising and listing of social enterprises and voluntary organisations. Further to invigorate corporate growth, there would be a hike in statutory limits for foreign investments in eligible companies. Plans to make RBI and SEBI depositories inter-operable in on the anvil. FPIs/NRIs would be permitted to subscribe to listed debt papers of REITs and InvITs. NPS trust would be segregated from the PFRDA to maintain arms-length distance. Net-owned fund requirement for foreign reinsurers to be reduced from Rs 5,000 crore to Rs 1,000 crore.

5. SMEs/MSMEs and startups

Recognising the contribution of SMEs to economic growth and employment generation, the Budget has several reforms aimed at benefiting this class. The government is mulling extending pension benefit to three crore retail traders with an annual turnover less than Rs 1.5 crore under Pradhan Mantri Karam Yogi Man Dan Scheme, with the creation of a payment platform for MSMEs for payment of bills. Additionally, several new clusters would be developed in 2019-20 to facilitate 50,000 artisans to enter the economic value chain. To boost farm incomes, 10,000 new farmer producer organisations would be formed. The Budget reinforced the importance accorded to zero budgeting in the farming sector. Further, 80 livelihood business incubators and 20 technology business incubators would be established to boost the rural agro-industry. To address the concerns of the startup community, a unique television program would be started, exclusively for startups. Further, the angel tax issue would be sorted out, eliminating harassment at the hands of the IT officials and minimum disclosure requirement. Rs, 350 crore rupees, would be allocated for 2% interest subvention for all GST-registered MSMEs on fresh or incremental loans. MSME can avail loans up to 1 crore within 59 minutes with 350 crore loans already been disbursed.

6. Sectors

The pain points of certain core sectors, critical to the economic growth of India have been addressed. The Budget would allocate Rs 70,000 crore for PSU bank recapitalisation to strengthen the banking sector. In an attempt to resolve the NBFC crisis, towards the purchase of high-rated pooled assets of financially-sound NBFCs, amounting to Rs 1 lakh crore during the current financial year, the government would extend one-time six-months partial credit guarantee to PSBs for the first loss up to 10 %. Further FIIs and FPIs investment in debt securities issued by NBFCs would be allowed. RBI would have higher control over the functioning of NBFCs with the maintenance of a Debenture Redemption Reserve. RBI, instead of the National Housing Bank would oversee housing finance companies. To boost the retail segment, local sourcing norms to be simplified for single-brand retail FDI. The rental space in real estate would be seeing a new model tenancy law, which would be shared with the States for implementation. There are proposals to incentivise the manufacture of electric vehicles and boost the automotive sector.

Infrastructure: There would be an investment of Rs 100 lakh crore in infrastructure in the next five years.

Transportation: It is proposed to carry out a comprehensive restructuring of National Highway programme. Domestic waterways and river would be utilised to carry cargo with a terminal, already in place in Varanasi. In the second phase of Bharat Mala project, states will be assisted to develop roadways. Under the Pradhan Gram Sadak Yojana under Phase III, an estimated 1,25,000 km of roads will be upgraded at an expected cost of Rs 80,250 crore.

Aviation: The Government believes that the conditions are ripe for India to enter into aircraft financing and leasing. Thus MRO services would be emphasised. Further to capitalise on India's strength in space and leverage it commercially, New Space India (NSIL) has been incorporated to derive the R&D benefits from ISRO.

Power: A package for power sector tariff with long term structural reforms would be announced

7. Disinvestment

A target has been set of Rs 1.05 lakh crore in disinvestment proceeds for the current financial year, with consideration to reduce stakeholding in non-financial PSUs below 51%, including stake held by government-owned institutions. The Government would explore strategic disinvestment of select PSUs, especially Air India.

Conclusion

Broadly, the Budget has several proposals to boost the rural economy, ensure lower carbon footprint, strengthen the financial system and rejuvenate corporate growth. All in all, a mixed bag of reforms, with benefits to multiple sections of the society.

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